I.T.A, NO.897/LB OF 1998 Versus I.T.A, NO.897/LB OF 1998
ORDER
M. MUNIR QURESHI (ACCOUNTANT MEMBER). --- I.T.A.T. (Full Bench) decision recorded in I.T.A. No.897/LB of 1998 (Assessment Year 1992-93), dated 30-11-1999 in the subject-matter of a Miscellaneous Application filed by the Respondent in that appeal as the Respondent seeks clarification as to the scope of cited decision. The need for such clarification has arisen as the department has statedly interpretated the Full Bench decision of 30-I1-1990 to mean that the assessment order levying C.A.T., dated 12-2-1997 passed under section 12 of the Finance Act, 1991, by the D.C.W.T., Wealth Tax Circle-O1 Multan, stood restored "in toto". The respondent asserted that the Full Bench decision has only adjudicated matter pertaining to a capital work in progress in the context of charge of Corporate Assets Tax.
2. I.T.A. No.897/LB of 1998 (Assessment Year 1992-93) is a departmental appeal against order of CIT (A), Zone-III, Karachi, (Campt at Multan), dated 21-1-1998, wherein the first appellate authority has deleted the charge of Corporate Assets Tax on:---
(a) Non-operating fixed assets valuing------------Rs. 36,34,438
(b) Capital work in progress amounting to--------Rs.20,59,16,822
(c) Unallocated capital expenses aggregating-----Rs. 71,12,537
3. The CIT(A) has further deleted additional tax charged amounting to Rs.17,17,150 after holding that there has been no short payment of corporate assets tax paid by the Company alongwith Return filed under section 12 of the Finance Act, 1991.
4. The question as to whether the fixed assets of a company include capital work in progress or not has been finally decided in I.T.A. No.897/LB of 1998 (Assessment Year 1992-93), dated 30-1-1999 and it has been held that fixed assets include capital work in progress'. Similarly, in the case of 'non-operating' fixed assets, it has been held that these two form part of fixed assets, except where they constitute "stock in Trade".
5. The Full Bench decision on the cited points is exhaustive. However, no decision has been recorded on the CIT(A) deletion or unallocated capital expenses from the fixed assets liable to charge of Corporate Assets Tax. Also, there is no finding on the levy of penalty for late filing of return amounting to Rs.4,000 upheld by the CIT(A) and the charge of additional tax amounting to Rs.17,17,150, for short payment of Corporate Assets Tax deleted by the CIT(A). These matters will now be taken up for necessary adjudication.
6. With regard to unallocated capital expenses, it is the contention of the respondent that such expenses should not be considered part of the fixed assets as they are statedly excluded for purposes of determination of depreciation allowance. It was explained that these expenses include different items of expenditure incurred to 'operation lies' and make the Company's fixed assets fit for commercial use.
7. The matter relating to treatment of unallocated capital expenses has been looked into. As stated above such expenses have been incurred to "operationalise" and make the Company's fixed assets fit for normal commercial use. For purposes of illustration, examples of such Capitalized Expenditure may be given as under:---
(a) Expenditure on installing an asset i.e. installation charges.
(b) Expenditure on repair to property, if the production capacity or utility of the property is increased. It may, however, be noted that sometimes a new asset may require some repair after its purchase but before it is installed and put into operation. Cost of such repair, although it may not increase the production capacity of the assets, will be treated as capitalised expenditure.
(c) Expenditure incidental to purchase of fixed assets e.g. freight, clearing charges, customs duty, carriage, cotroi duty, import duty on assets purchased.
(d) Expenditure on removal of old property.
(e) Cost of repair to second-hand assets. Repair is a revenue expenditure. But the cost of repair after buying a second-hand asset to bring them into proper working condition is treated as Capitalized Expenditure.
(f) Wages :---It is a revenue expenditure but if paid for installation of a machine or plant, then it is treated as capitalized expenditure.
(g) Legal charges. ---Legal charges i.e. lawyer's fee, court-fee in connection with the purchase of assets of permanent nature are regarded no capital expenditure.
(h) Interest. ---Interest paid is generally a revenue expenditure. But in some industries like iron and steel, cement industry, a concern has to wait for a long period before it starts operation. Interest for such period on capital and loan is treated as capital expenditure.
8. Notwithstanding the departments treatment of such expenses at the time of determination of depreciation allowance, the fact of the matter is that since these expenses are directly connected with the Company's fixed assets, they constitute Capitalized Expenditure". The Company would be able to derive "Recurring Benefit" from its fixed assets only if such "Capitalized Expenditure" has been actually incurred. These expenses eventually merge into the cost incurred on the acquisition of fixed assets. However, it may not be possible to precisely relate the capital expenditure ~to "a" particular fixed asset. In other words such expenditure may be spread over a number of different fixed assets viz different plant/machinery/building items. In such a situation it may not be possible to tell immediately, the exact quantum of capital expenditure "embodied" in "a" particular fixed assets. That is one reason why such unallocated capital expenses are often excluded at the time of determination of depreciation allowance. Nevertheless where the capital expenditure has been admittedly incurred in the context of the Company's aggregate fixed assets, the nature of such capital expenditure remains unchanged and it must form part of the over all value of the Company's fixed assets. Hence, so far as levy of corporate assets tax is concerned, the capitalized expenditure, though "unallocated" must form part of the Company's fixed assets.
9. The unallocated capital expenditure cited by Respondent Company in the balance sheet as on 30-9-1991 is as under:---
Salaries and benefits
Rs. 143,498
Travelling and conveyance
Rs. 23,741
Vehicle running and maintenance
Rs. 74,734
Electricity
Rs. 250,985
Printing & Stationery
Rs. 59,774
Communication .
Rs. 3,779
Rent, rates and taxes
Rs. 9,338
Fee and subscription
Rs. 856,487
Legal and professional charges
Rs. 13,582
Advertisement
Rs. 21,646
Insurance
Rs. 21,866
Mark-up and Bank charges
Rs. 5,038,063
Lease rent of humidification
Rs. 576,495
Others
Rs. 18,546
Rs. 7,112,537
It is evident that these expenses are broadly consistent with the illustrative examples cited in para.7 above.
10. Penalty amounting to Rs.4,000 has been levied for late filing of C.A.T. Return by A, days at the rate of Rs.1,000 per day. Also additional tax amounting to Rs.17,17,150 has been charged at the rate of 24 % per annum calculated from the date it was due (i.e. 30-9-1991) up to 12-2-1997 which is the date of finalization of assessment by the DCTI.
11. The A.R. of Respondent Company has pointed out in I.T.A. No.1872/LB of 1997 (Assessment year 1992-93), dated 26-5-1998; the Income Tax Appellate Tribunal, Lahore (Special Bench), had directed that penalty/additional tax not be levied in the context of C.A.T. as C.B.R. had issued multiple circulars relating to C.A.T. that had created confusion in the minds of taxpayers. It is argued that the cited decision is applicable to the to the facts and circumstances of Respondent's case and, therefore, penalty and, additional tax may not be charged.
12. After the consideration of the matter, we are of- the opinion that in the facts and circumstances of the case, penalty and additional tax should not be levied. The cancellation, of additional tax by the CIT(A), is therefore, maintained but not for the reason assigned by the learned CIT(A). As regards levy of penalty that has been upheld by the CIT(A) we agree with the .Respondent's citation of decision recorded in I.T.A. No.1872/LB of 1997 (Assessment Year 1992-93), dated 26-5-1999 and direct that penalty is not to be levied.
13. In the result the departmental appeal succeeds to the extent that unallocated capital expenses are to be included in the fixed assets of the Company. However, there is to be no charge of penalty for late filing of Return and no charge of additional tax.
14. I.T.A. No. 897/LB of 1998 (Assessment Year 1992-93, dated 30-11-1999, is maintained intact and adjudication made above vide I.T.A. No.897/LB of 1998 (Assessment Year 1992-93), dated 29-3-2000 is to be read alongwith I.T.A. No.897/LB of 1998 (Assessment Year 1992-93), dated 30-11-1999.
15. To summarize the Respondent Company's fixed assets liable to charge of C.A.T. are as under:--
Operating fixed assets
9,19,82,355
Less value of vehicles as clarified by C.B.R. vide
C. No: 3 (1)/ CAT/91, dated 26-4-1992.
28,21,607
Rs. 8,91,60,748
Non-operating fixed assets
Rs. .36,34,438
Rs. 30,58,24,545
Capital work in progress
Rs. 20,59,16,822
Unallocated capital expenses
Rs. 71,12,537
C.M.A./M.A.K./114/Tax(Trib.) Order accordingly.